Which of the following statements is correct regarding the direct method of accounting for any write down of inventories to its net realizable value (NRV)? a. An Allowance to Reduce Inventory to Net Realizable Value account is used to record inventory at the lower of cost and NRV. b. The beginning and ending inventories are measured at the lower of cost and NRV when determining the cost of goods sold for the period. c. The beginning and ending inventories are measured at cost when determining the cost of goods sold for the period. d. The decline in NRV of inventory is reported as an other expense while recovery in NRV of inventory is reported as an other income.

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A: a.

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A:

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A:

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A:

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Q: a.) determine the cost assigned to ending inventory and to the cost of goods sold using FIFO.

A: Solution :

Inventory Valuation

Before discussing the topic inventory valuation let’s discuss the meaning of inventory. In accounting, inventory is also known as stock. Inventory means all the finished goods, materials, merchandise that a business holds for the purpose of selling it in the market with the motive of earning profit.